China considers loosening up car joint ventures policy

The Chinese government may give more freedom to foreign carmakers over owning stakes in joint ventures with domestic companies, to spur the competition.

China has been very protective with its domestic automakers by imposing to foreign companies that want to enter on its market to form joint ventures with local firms, also limiting their stakes to no more than 50 percent. According to Bloomberg, this policy, which is active since 1994, is now been reconsidered by the government. There are many voices supporting such a move, on the grounds that more freedom for foreign carmakers over their operations will benefit the customers by encouraging competition. However, the China Association of Automobile Manufacturers has always been strongly against slackening the policy, warning that it will deeply affect domestic carmakers by choking their market share.

The Chinese auto market has been on a steady growth path in recent months due to the government’s efforts to boost the demand by cutting the purchase tax for engines smaller than 1.6-litre as of October last year. Furthermore, the local auto brands lately managed to revert a 5-year downward trend by increasing their share of domestic passenger-vehicle sales.

All the global players have joint-ventures in China to build passenger cars and commercial vehicles as well. For example, Volkswagen already has two partnerships in the country – with Shanghai Automotive and FAW -, Ford teamed up with Changan and Jiangling or General Motors with Baojun and Wuling.